On the role of dependence in sticky price and sticky information Phillips curve: Modelling and forecasting
Roberto Casarin,
Mauro Costantini and
Antonio Paradiso
Economic Modelling, 2021, vol. 105, issue C
Abstract:
Understanding the role of sticky price and sticky information for inflation dynamics is a key issue in economics. The literature has treated the two forms of stickiness as independent. This paper proposes a new dual stickiness Phillips curve based on dependence among the events of setting prices and updating information. Using US data over the period 1947Q1–2020Q1, the new model is scrutinized against a dual stickiness model without dependence, a pure sticky price model, and a pure sticky information model, through in- and out-of-sample analyses. The results show: (i) the new model outperforms the model without dependence in-sample; (ii) the dual stickiness models perform similarly out-of-sample; and (iii) the pure sticky models yield the worst forecasts. The results have some implications for policy makers and practitioners. A policy maker may consider the new model given its performance in- and out-of-sample, while a practitioner may prefer the model without dependence, given its lesser complexity and its competitive forecasting performance.
Keywords: Phillips curve; Dual stickiness; Dependence; Bayesian analysis; Forecasting (search for similar items in EconPapers)
JEL-codes: C11 C32 C53 E31 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:105:y:2021:i:c:s0264999321002339
DOI: 10.1016/j.econmod.2021.105644
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